Company Quick10K Filing
Quick10K
Lakeland Financial
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$47.50 26 $1,220
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-07-09 Regulation FD
8-K 2019-04-25 Earnings, Exhibits
8-K 2019-04-09 Regulation FD, Exhibits
8-K 2019-04-09 Shareholder Vote
8-K 2019-03-20 Amend Bylaw, Exhibits
8-K 2019-03-14 Officers, Regulation FD, Exhibits
8-K 2019-01-25 Earnings, Other Events, Exhibits
8-K 2019-01-25 Earnings, Other Events, Exhibits
8-K 2019-01-08 Regulation FD
8-K 2018-11-27 Officers
8-K 2018-10-25 Earnings, Exhibits
8-K 2018-10-11 Officers, Regulation FD, Exhibits
8-K 2018-10-09 Regulation FD
8-K 2018-07-25 Earnings, Exhibits
8-K 2018-07-10 Regulation FD
8-K 2018-04-25 Earnings, Exhibits
8-K 2018-04-10 Regulation FD, Exhibits
8-K 2018-01-25 Earnings, Exhibits
8-K 2018-01-11 Regulation FD
8-K 2018-01-09 Regulation FD
VLO Valero Energy 34,110
VEON VEON 4,160
CVA Covanta Holding 2,320
HUBG Hub Group 1,500
SPNS Sapiens 761
VKTX Viking Therapeutics 622
MRUS Merus 321
ZYNE Zynerba Pharmaceuticals 252
FRD Friedman Industries 53
FSSN Fision 0
LKFN 2019-03-31
Item 1. Financial Statements
Note 1. Basis of Presentation
Note 2. Securities
Note 3. Loans
Note 4. Allowance for Loan Losses and Credit Quality
Note 5. Fair Value Disclosures
Note 6. Securities Sold Under Agreements To Repurchase
Note 7. Employee Benefit Plans
Note 8. Offsetting Assets and Liabilities
Note 9. Earnings per Share
Note 10. Accumulated Other Comprehensive Income (Loss)
Note 11. Leases
Item 2 ‑ Management's Discussion and Analysis of Financial Condition and Results Of
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Item 4 - Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ex311.htm
EX-31.2 ex312.htm
EX-32.1 ex321.htm
EX-32.2 ex322.htm

Lakeland Financial Earnings 2019-03-31

LKFN 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 lkfn10q.htm FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10‑Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

OR

[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to _____________

LAKELAND FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)

Indiana
0-11487
35-1559596
(State or Other Jurisdiction
(Commission File Number)
(IRS Employer
of Incorporation or Organization)
 
Identification No.)


202 East Center Street, P.O. Box 1387, Warsaw, Indiana 46581‑1387
(Address of Principal Executive Offices)(Zip Code)

(574) 267‑6144
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]   No [  ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ ‘‘smaller reporting company,’’ and ‘‘emerging growth company’’ in Rule 12b–2 of the Exchange Act.

Large accelerated filer [X]   Accelerated filer [  ]   Non-accelerated filer [  ]
Smaller reporting company [  ]    Emerging growth company [  ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

Number of shares of common stock outstanding at April 30, 2019:  25,614,665



TABLE OF CONTENTS
   
Page
     
PART I. FINANCIAL INFORMATION
 
   
     
Item 1.
 
 
1
 
2
 
3
 
4
 
5
 
6
Item 2.
32
Item 3.
45
Item 4.
45
     
PART II. OTHER INFORMATION
 
     
Item 1.
46
Item 1A.
46
Item 2.
46
Item 3.
46
Item 4.
46
Item 5.
47
Item 6.
47
     
48
     




ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
 
March 31,
 
December 31,
 
2019
 
2018
 
(Unaudited)
 
 
ASSETS
 
 
 
Cash and due from banks
 $143,081
 
 $192,290
Short-term investments
45,672
 
24,632
  Total cash and cash equivalents
188,753
 
216,922
 
 
 
 
Securities available for sale (carried at fair value)
595,553
 
585,549
Real estate mortgage loans held for sale
3,047
 
2,293
 
 
 
 
Loans, net of allowance for loan losses of $49,562 and $48,453
3,889,448
 
3,866,292
 
 
 
 
Land, premises and equipment, net
58,760
 
58,097
Bank owned life insurance
82,253
 
77,106
Federal Reserve and Federal Home Loan Bank stock
13,772
 
13,772
Accrued interest receivable
17,387
 
15,518
Goodwill
4,970
 
4,970
Other assets
37,942
 
34,735
  Total assets
 $4,891,885
 
 $4,875,254
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
LIABILITIES
 
 
 
Noninterest bearing deposits
 $931,832
 
 $946,838
Interest bearing deposits
3,215,605
 
3,097,227
  Total deposits
4,147,437
 
4,044,065
 
 
 
 
Borrowings
 
 
 
  Federal funds purchased
122,000
 
0
  Securities sold under agreements to repurchase
0
 
75,555
  Federal Home Loan Bank advances
0
 
170,000
  Subordinated debentures
30,928
 
30,928
    Total borrowings
152,928
 
276,483
 
 
 
 
Accrued interest payable
11,794
 
10,404
Other liabilities
36,459
 
22,598
    Total liabilities
4,348,618
 
4,353,550
 
 
 
 
STOCKHOLDERS' EQUITY
 
 
 
Common stock:  90,000,000 shares authorized, no par value
 
 
 
 25,614,665 shares issued and 25,442,827 outstanding as of March 31, 2019
 
 
 
 25,301,732 shares issued and 25,128,773 outstanding as of December 31, 2018
111,571
 
112,383
Retained earnings
432,953
 
419,179
Accumulated other comprehensive income (loss)
2,487
 
(6,191)
Treasury stock, at cost (2019 - 171,838 shares, 2018 - 172,959 shares)
(3,833)
 
(3,756)
  Total stockholders' equity
543,178
 
521,615
  Noncontrolling interest
89
 
89
  Total equity
543,267
 
521,704
    Total liabilities and equity
 $4,891,885
 
 $4,875,254


The accompanying notes are an integral part of these consolidated financial statements.


1



CONSOLIDATED STATEMENTS OF INCOME (unaudited - in thousands, except share and per share data)
 
Three Months Ended
 
March 31,
 
2019
 
2018
NET INTEREST INCOME
 
 
 
Interest and fees on loans
 
 
 
  Taxable
 $48,866
 
 $41,794
  Tax exempt
 251
 
 217
Interest and dividends on securities
 
 
 
  Taxable
 2,497
 
 2,434
  Tax exempt
 1,642
 
 1,331
Other interest income
 238
 
 292
    Total interest income
 53,494
 
 46,068
 
 
 
 
Interest on deposits
 13,883
 
 9,367
Interest on borrowings
 
 
 
  Short-term
 950
 
 111
  Long-term
 452
 
 367
    Total interest expense
 15,285
 
 9,845
 
 
 
 
NET INTEREST INCOME
 38,209
 
 36,223
 
 
 
 
Provision for loan losses
 1,200
 
 3,300
 
 
 
 
NET INTEREST INCOME AFTER PROVISION FOR
 
 
 
  LOAN LOSSES
 37,009
 
 32,923
 
 
 
 
NONINTEREST INCOME
 
 
 
Wealth advisory fees
 1,620
 
 1,505
Investment brokerage fees
 386
 
 290
Service charges on deposit accounts
 4,287
 
 3,628
Loan and service fees
 2,404
 
 2,177
Merchant card fee income
 622
 
 642
Bank owned life insurance income
 444
 
 363
Mortgage banking income
 222
 
 241
Net securities gains (losses)
 23
 
 (6)
Other income
 1,517
 
 1,039
  Total noninterest income
 11,525
 
 9,879
 
 
 
 
NONINTEREST EXPENSE
 
 
 
Salaries and employee benefits
 12,559
 
 12,019
Net occupancy expense
 1,366
 
 1,426
Equipment costs
 1,349
 
 1,274
Data processing fees and supplies
 2,425
 
 2,513
Corporate and business development
 1,206
 
 1,133
FDIC insurance and other regulatory fees
 406
 
 461
Professional fees
 937
 
 872
Other expense
 2,225
 
 1,504
  Total noninterest expense
 22,473
 
 21,202
 
 
 
 
INCOME BEFORE INCOME TAX EXPENSE
 26,061
 
 21,600
Income tax expense
 4,379
 
 3,264
NET INCOME
 $21,682
 
 $18,336
 
 
 
 
BASIC WEIGHTED AVERAGE COMMON SHARES
 25,491,093
 
 25,257,414
BASIC EARNINGS PER COMMON SHARE
 $0.85
 
 $0.73
DILUTED WEIGHTED AVERAGE COMMON SHARES
 25,665,287
 
 25,696,864
DILUTED EARNINGS PER COMMON SHARE
 $0.84
 
 $0.71


The accompanying notes are an integral part of these consolidated financial statements.


2


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited - in thousands)
 
     
Three months ended March 31,
     
2019
 
2018
Net income
 $21,682
 
 $18,336
Other comprehensive income
     
 
Change in securities available for sale:
     
   
Unrealized holding gain/(loss) on securities available for sale
     
   
  arising during the period
 10,960
 
 (9,161)
   
Reclassification adjustment for (gains)/losses included in net income
(23)
 
6
   
Net securities gain/(loss) activity during the period
 10,937
 
 (9,155)
   
Tax effect
 (2,297)
 
 2,029
   
Net of tax amount
 8,640
 
 (7,126)
 
Defined benefit pension plans:
     
   
Amortization of net actuarial loss
 50
 
 66
   
Net gain activity during the period
 50
 
66
   
Tax effect
 (12)
 
 (17)
   
Net of tax amount
 38
 
 49
     
 
 
 
   
Total other comprehensive income, net of tax
 8,678
 
 (7,077)
           
Comprehensive income
 $30,360
 
 $11,259


The accompanying notes are an integral part of these consolidated financial statements.




3








CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited - in thousands, except share and per share data)
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other
 
 
 
Total
 
 
 
 
 
Common Stock
 
Retained
 
Comprehensive
 
Treasury
 
Stockholders'
 
Noncontrolling
 
Total
 
Shares
 
Stock
 
Earnings
 
Income (Loss)
 
Stock
 
Equity
 
Interest
 
Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2018
 25,025,933
 
 $108,862
 
 $363,794
 
 $(670)
 
 $(3,408)
 
 $468,578
 
 $89
 
 $468,667
Adoption of ASU 2018-02
 
 
 
 
 173
 
 (173)
 
 
 
 0
 
 
 
 0
Adoption of ASU 2014-09
 
 
 
 
 24
 
 
 
 
 
 24
 
 
 
 24
Adoption of ASU 2016-01
 
 
 
 
 68
 
 (68)
 
 
 
 0
 
 
 
 0
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Net income
 
 
 
 
 18,336
 
 
 
 
 
 18,336
 
 
 
 18,336
  Other comprehensive loss, net of tax
 
 
 
 
 
 
 (7,077)
 
 
 
 (7,077)
 
 
 
 (7,077)
  Cash dividends declared, $0.22 per share
 
 
 
 
 (5,545)
 
 
 
 
 
 (5,545)
 
 
 
 (5,545)
  Treasury shares purchased under deferred
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    directors' plan
 (3,807)
 
 185
 
 
 
 
 
 (185)
 
 0
 
 
 
 0
  Treasury shares sold and distributed under deferred
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    directors' plan
 5,636
 
 (115)
 
 
 
 
 
 115
 
 0
 
 
 
 0
  Stock activity under equity compensation plans
 96,679
 
 (2,483)
 
 
 
 
 
 
 
 (2,483)
 
 
 
 (2,483)
  Stock based compensation expense
 
 
 1,411
 
 
 
 
 
 
 
 1,411
 
 
 
 1,411
Balance at March 31, 2018
 25,124,441
 
 $107,860
 
 $376,850
 
 $(7,988)
 
 $(3,478)
 
 $473,244
 
 $89
 
 $473,333
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2019
 25,128,773
 
 $112,383
 
 $419,179
 
 $(6,191)
 
 $(3,756)
 
 $521,615
 
 $89
 
 $521,704
Adoption of ASU 2017-08 (See Note 1)
 
 
 
 
 (1,327)
 
 
 
 
 
 (1,327)
 
 
 
 (1,327)
Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Net income
 
 
 
 
 21,682
 
 
 
 
 
 21,682
 
 
 
 21,682
  Other comprehensive income, net of tax
 
 
 
 
 
 
 8,678
 
 
 
 8,678
 
 
 
 8,678
  Cash dividends declared, $0.26 per share
 
 
 
 
 (6,581)
 
 
 
 
 
 (6,581)
 
 
 
 (6,581)
  Cashless exercise of warrants
 224,066
 
 0
 
 
 
 
 
 
 
 0
 
 
 
 0
  Treasury shares purchased under deferred
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    directors' plan
 (4,578)
 
 195
 
 
 
 
 
 (195)
 
 0
 
 
 
 0
  Treasury shares sold and distributed under deferred
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    directors' plan
 5,699
 
 (118)
 
 
 
 
 
 118
 
 0
 
 
 
 0
  Stock activity under equity compensation plans
 88,867
 
 (2,089)
 
 
 
 
 
 
 
 (2,089)
 
 
 
 (2,089)
  Stock based compensation expense
 
 
 1,200
 
 
 
 
 
 
 
 1,200
 
 
 
 1,200
Balance at March 31, 2019
 25,442,827
 
 $111,571
 
 $432,953
 
 $2,487
 
 $(3,833)
 
 $543,178
 
 $89
 
 $543,267


The accompanying notes are an integral part of these consolidated financial statements.



4





CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited - in thousands)
Three Months Ended March 31
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income
 $21,682
 
 $18,336
Adjustments to reconcile net income to net cash from operating
 
 
 
      activities:
 
 
 
  Depreciation
 1,417
 
 1,404
  Provision for loan losses
 1,200
 
 3,300
  Net loss on sale and write down of other real estate owned
 0
 
 16
  Amortization of loan servicing rights
 122
 
 132
  Loans originated for sale, including participations
 (7,454)
 
 (9,506)
  Net gain on sales of loans
 (258)
 
 (350)
  Proceeds from sale of loans, including participations
 6,835
 
 11,499
  Net loss on sales of premises and equipment
 1
 
 2
  Net loss (gain) on sales and calls of securities available for sale
 (23)
 
 6
  Net securities amortization
 817
 
 749
  Stock based compensation expense
 1,200
 
 1,411
  Earnings on life insurance
 (444)
 
 (363)
  Gain on life insurance
 (841)
 
 (201)
  Tax benefit of stock award issuances
 (529)
 
 (761)
  Net change:
 
 
 
    Interest receivable and other assets
 (1,342)
 
 (2,130)
    Interest payable and other liabilities
 1,276
 
 2,395
      Total adjustments
 1,977
 
 7,603
        Net cash from operating activities
 23,659
 
 25,939
 
 
 
 
Cash flows from investing activities:
 
 
 
  Proceeds from sale of securities available for sale
 13,693
 
 12,322
  Proceeds from maturities, calls and principal paydowns of
 
 
 
    securities available for sale
 16,026
 
 12,659
  Purchases of securities available for sale
 (22,183)
 
 (53,841)
  Purchase of life insurance
 (5,362)
 
 (258)
  Net increase in total loans
 (24,356)
 
 (32,003)
  Proceeds from sales of land, premises and equipment
 10
 
 1
  Purchases of land, premises and equipment
 (2,091)
 
 (678)
  Proceeds from sales of other real estate
 0
 
 12
  Proceeds from life insurance
 1,483
 
 564
        Net cash from investing activities
 (22,780)
 
 (61,222)
 
 
 
 
Cash flows from financing activities:
 
 
 
  Net increase in total deposits
 103,372
 
 90,833
  Net increase in short-term borrowings
 46,445
 
 24,064
  Payments on short-term FHLB borrowings
 (170,000)
 
 0
  Payments on long-term FHLB borrowings
 0
 
 (80,030)
  Common dividends paid
 (6,581)
 
 (5,545)
  Payments related to equity incentive plans
 (2,089)
 
 (2,483)
  Purchase of treasury stock
 (195)
 
 (185)
        Net cash from financing activities
 (29,048)
 
 26,654
Net change in cash and cash equivalents
 (28,169)
 
 (8,629)
Cash and cash equivalents at beginning of the period
 216,922
 
 176,180
Cash and cash equivalents at end of the period
 $188,753
 
 $167,551
Cash paid during the period for:
 
 
 
    Interest
 $13,896
 
 $8,672
Supplemental non-cash disclosures:
 
 
 
    Securities purchases payable
 8,725
 
 3,081
    Right-of-use assets obtained in exchange for lease liabilities
 5,483
 
 0

The accompanying notes are an integral part of these consolidated financial statements.



5


NOTE 1. BASIS OF PRESENTATION

This report is filed for Lakeland Financial Corporation (the “Company”), which has two wholly owned subsidiaries, Lake City Bank (the “Bank”) and LCB Risk Management, a captive insurance company. Also included in this report is the Bank’s wholly owned subsidiary, LCB Investments II, Inc. (“LCB Investments”), which manages the Bank’s investment portfolio. LCB Investments owns LCB Funding, Inc. (“LCB Funding”), a real estate investment trust. All significant inter-company balances and transactions have been eliminated in consolidation.

The unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions for Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and are unaudited. In the opinion of management, all adjustments (all of which are normal and recurring in nature) considered necessary for a fair presentation have been included. Operating results for the three-months ended March 31, 2019 are not necessarily indicative of the results that may be expected for any subsequent reporting periods, including the year ending December 31, 2019. The Company’s 2018 Annual Report on Form 10-K should be read in conjunction with these statements.

Adoption of New Accounting Standards

The Company accounts for leases in accordance with ASU 2016-02, “Leases”, which the Company adopted on January 1, 2019.  This guidance replaced existing lease guidance in GAAP and requires lessees to recognize lease assets and lease liabilities on the balance sheet for all leases and disclose key information about leasing arrangements. Lessees and lessors are required to recognize and measure leases that exist at the beginning of the earliest period presented using a modified retrospective approach. The Company recorded a right-of-use asset of $5.5 million and a lease liability of $5.5 million upon adoption, and there was no cumulative period adjustment made to retained earnings.  This standard did not have a material impact on the Company’s balance sheets or cash flows from operations and had no impact on the Company’s operating results. The most significant impact was the recognition of right-of-use assets and lease obligations for operating leases.  The Company elected to adopt the package of practical expedients for this standard.

In March 2017, the FASB issued ASU No. 2017-08, “Receivables—Nonrefundable Fees and Other Costs: Premium Amortization on Purchased Callable Debt Securities.” This update amends the amortization period for certain purchased callable debt securities held at a premium. FASB is shortening the amortization period for the premium to the earliest call date. Under current GAAP, entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument. Concerns were raised that current GAAP excludes certain callable debt securities from consideration of early repayment of principal even if the holder is certain that the call will be exercised. As a result, upon the exercise of a call on a callable debt security held at a premium, the unamortized premium is recorded as a loss in earnings. There is diversity in practice (1) in the amortization period for premiums of callable debt securities and (2) in how the potential for exercise of a call is factored into current impairment assessments. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2018. The Company adopted this new accounting standard on January 1, 2019.  The effect of adoption was a reduction in retained earnings of approximately $1.3 million, net of tax, to reflect the acceleration of amortization of premiums on debt securities.

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities”. The purpose of this updated guidance is to better align a company's financial reporting for hedging activities with the economic objectives of those activities. ASU 2017-12 is effective for public business entities for fiscal years beginning after December 15, 2018, with early adoption, including adoption in an interim period, permitted. The Company adopted ASU 2017-12 on January 1, 2019. ASU 2017-12 requires a modified retrospective transition method in which the Company will recognize the cumulative effect of the change on the opening balance of each affected component of equity in the statement of financial position as of the date of adoption. Adopting this standard did not have an impact on the Company’s financial condition or results of operations.


Newly Issued But Not Yet Effective Accounting Standards

In June 2016, the FASB issued guidance related to credit losses on financial instruments. This update will change the accounting for credit losses on loans and debt securities. The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. For loans, this measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the “incurred loss” model required under current GAAP, which delays recognition until it is probable a loss has been incurred. In addition, the guidance will modify the other-than-temporary


6


impairment model for available-for-sale debt securities to require an allowance for credit impairment instead of a direct write-down, which will allow for reversal of credit impairments in future periods. This guidance is effective for public business entities that meet the definition of an SEC filer for fiscal years beginning after December 15, 2019, including interim periods in those fiscal years. The Company has formed a cross-functional committee that has evaluated existing technology and other solutions for calculating losses under this new standard, selected a vendor to validate data currently loaded in the technology solution selected, and reviewed the validation assessment report. The committee has selected a model and is working on initial calculations under the model. Management expects to recognize credit losses earlier upon adoption of this accounting standard and the expected credit loss model than it has historically done under the current incurred credit loss model.  While the impact of implementing the CECL model cannot be quantified at this time, the Company expects to recognize a one-time cumulative-effect adjustment to the allowance upon adoption.

In January 2017, the FASB issued ASU No. 2017-04 "Intangibles - Goodwill and Other - Simplifying the Test for Goodwill Impairment." These amendments eliminate Step 2 from the goodwill impairment test. The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The guidance is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. ASU 2017-04 should be adopted on a prospective basis. Management does not expect the adoption of this new accounting standard to have a material impact on our financial statements.

Reclassifications

Certain amounts appearing in the financial statements and notes thereto for prior periods have been reclassified to conform with the current presentation. The reclassifications had no effect on net income or stockholders' equity as previously reported.

7

NOTE 2. SECURITIES

Information related to the fair value and amortized cost of securities available for sale and the related gross unrealized gains and losses recognized in accumulated other comprehensive income is provided in the tables below.


     
Gross
 
Gross
   
 
Amortized
 
Unrealized
 
Unrealized
 
Fair
(dollars in thousands)
Cost
 
Gain
 
Losses
 
Value
March 31, 2019
             
  U.S. Treasury securities
 $994
 
 $0
 
 $0
 
 $994
  U.S. government sponsored agencies
4,066
 
0
 
(77)
 
3,989
  Mortgage-backed securities: residential
320,460
 
2,378
 
(2,559)
 
320,279
  Mortgage-backed securities: commercial
38,244
 
1
 
(216)
 
38,029
  State and municipal securities
226,924
 
5,624
 
(286)
 
232,262
    Total
 $590,688
 
 $8,003
 
 $(3,138)
 
 $595,553
               
December 31, 2018
             
  U.S. Treasury securities
 $994
 
 $0
 
 $(7)
 
 $987
  U.S. government sponsored agencies
4,435
 
0
 
(85)
 
4,350
  Mortgage-backed securities: residential
329,516
 
1,392
 
(5,496)
 
325,412
  Mortgage-backed securities: commercial
38,712
 
0
 
(571)
 
38,141
  State and municipal securities
217,964
 
1,403
 
(2,708)
 
216,659
    Total
 $591,621
 
 $2,795
 
 $(8,867)
 
 $585,549


Information regarding the fair value and amortized cost of available for sale debt securities by maturity as of March 31, 2019 is presented below. Maturity information is based on contractual maturity for all securities other than mortgage-backed securities. Actual maturities of securities may differ from contractual maturities because borrowers may have the right to prepay the obligation without a prepayment penalty.


 
Amortized
 
Fair
(dollars in thousands)
Cost
 
Value
Due in one year or less
 $1,732
 
 $1,742
Due after one year through five years
25,086
 
25,342
Due after five years through ten years
25,267
 
25,970
Due after ten years
179,899
 
184,191
 
231,984
 
237,245
Mortgage-backed securities
358,704
 
358,308
  Total debt securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 $590,688
 
 $595,553
Securities proceeds, gross gains and gross losses are presented below.


 
Three months ended March 31,
(dollars in thousands)
2019
 
2018
Sales of securities available for sale
     
  Proceeds
 $13,693
 
 $12,322
  Gross gains
70
 
21
  Gross losses
(47)
 
(27)
  Number of securities
17
 
22


In accordance with ASU No. 2017-08, purchase premiums for callable securities are amortized to the earliest call date and premiums on non-callable securities as well as discounts are recognized in interest income using the interest method over the terms of


8


the securities or over the estimated lives of mortgage-backed securities. Gains and losses on sales are based on the amortized cost of the security sold and recorded on the trade date.

Securities with carrying values of $62.0 million and $164.7 million were pledged as of March 31, 2019 and December 31, 2018, respectively, as collateral for securities sold under agreements to repurchase, borrowings from the Federal Home Loan Bank and for other purposes as permitted or required by law.

Information regarding securities with unrealized losses as of March 31, 2019 and December 31, 2018 is presented below. The tables divide the securities between those with unrealized losses for less than twelve months and those with unrealized losses for twelve months or more.


 
Less than 12 months
 
12 months or more
 
Total
 
Fair
 
Unrealized
 
Fair
 
Unrealized
 
Fair
 
Unrealized
(dollars in thousands)
Value
 
Losses
 
Value
 
Losses
 
Value
 
Losses
March 31, 2019
                     
U.S. government sponsored agencies
 $1,644
 
 $4
 
 $2,345
 
 $73
 
 $3,989
 
 $77
Mortgage-backed securities: residential
27,476
 
22
 
161,955
 
2,537
 
189,431
 
2,559
Mortgage-backed securities: commercial
5,096
 
8
 
28,819
 
208
 
33,915
 
216
State and municipal securities
7,138
 
51
 
19,685
 
235
 
26,823
 
286
  Total temporarily impaired
 $41,354
 
 $85
 
 $212,804
 
 $3,053
 
 $254,158
 
 $3,138
                       
December 31, 2018
                     
U.S. Treasury securities
 $0
 
 $0
 
 $987
 
 $7
 
 $987
 
 $7
U.S. government sponsored agencies
0
 
0
 
4,350
 
85
 
4,350
 
85
Mortgage-backed securities: residential
11,619
 
12
 
217,182
 
5,484
 
228,801
 
5,496
Mortgage-backed securities: commercial
0
 
0
 
38,141
 
571
 
38,141
 
571
State and municipal securities
26,229
 
124
 
85,982
 
2,584
 
112,211
 
2,708
  Total temporarily impaired
 $37,848
 
 $136
 
 $346,642
 
 $8,731
 
 $384,490
 
 $8,867


The total number of securities with unrealized losses as of March 31, 2019 and December 31, 2018 is presented below.


 
Less than
 
12 months
   
 
12 months
 
or more
 
Total
March 31, 2019
         
U.S. government sponsored agencies
1
 
1
 
2
Mortgage-backed securities: residential
12
 
64
 
76
Mortgage-backed securities: commercial
1
 
7
 
8
State and municipal securities
10
 
22
 
32
  Total temporarily impaired
24
 
94
 
118
           
December 31, 2018
         
U.S. Treasury securities
0
 
1
 
1
U.S. government sponsored agencies
0
 
2
 
2
Mortgage-backed securities: residential
5
 
84
 
89
Mortgage-backed securities: commercial
0
 
9
 
9
State and municipal securities
35
 
111
 
146
  Total temporarily impaired
40
 
207
 
247

The following factors are considered in determining whether or not the impairment of these securities is other-than-temporary. In making this determination, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer, as well as the underlying fundamentals of the relevant market and the outlook for such market in the near future. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) OTTI related to other factors, which is


9


recognized in other comprehensive income. Credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. As of March 31, 2019 and December 31, 2018, all of the securities in the Company’s portfolio were backed by the U.S. government, government agencies, government sponsored entities or were A-rated or better, except for certain non-local or local municipal securities, which are not rated. For the government, government agency, government-sponsored entity and municipal securities, management did not believe that there would be credit losses or that full principal would not be received. Management considers the unrealized losses on these securities to be primarily interest rate driven and does not expect material losses given current market conditions unless the securities are sold. However, at this time management does not have the intent to sell, and it is more likely than not that the Company will not be required to sell these securities before the recovery of their amortized cost basis.

NOTE 3. LOANS


 
March 31,
December 31,
(dollars in thousands)
2019
2018
Commercial and industrial loans:
           
  Working capital lines of credit loans
 $726,895
 18.4
 %
 $690,620
 17.6
 %
  Non-working capital loans
 700,447
 17.8
 
 714,759
 18.3
 
    Total commercial and industrial loans
 1,427,342
 36.2
 
 1,405,379
 35.9
 
             
Commercial real estate and multi-family residential loans:
           
  Construction and land development loans
 293,818
 7.5
 
 266,805
 6.8
 
  Owner occupied loans
 557,296
 14.1
 
 586,325
 15.0
 
  Nonowner occupied loans
 537,569
 13.7
 
 520,901
 13.3
 
  Multifamily loans
 240,939
 6.1
 
 195,604
 5.0
 
    Total commercial real estate and multi-family residential loans
 1,629,622
 41.4
 
 1,569,635
 40.1
 
             
Agri-business and agricultural loans:
           
  Loans secured by farmland
139,645
 3.6
 
177,503
 4.6
 
  Loans for agricultural production
162,662
 4.1
 
193,010
 4.9
 
    Total agri-business and agricultural loans
302,307
 7.7
 
370,513
 9.5
 
             
Other commercial loans
 112,021
 2.8
 
 95,657
 2.4
 
  Total commercial loans
 3,471,292
 88.1
 
 3,441,184
 87.9
 
             
Consumer 1-4 family mortgage loans:
           
  Closed end first mortgage loans
 188,777
 4.8
 
 185,822
 4.7
 
  Open end and junior lien loans
 182,791
 4.7
 
 187,030
 4.8
 
  Residential construction and land development loans
 13,142
 0.3
 
 16,226
 0.4
 
  Total consumer 1-4 family mortgage loans
 384,710
 9.8
 
 389,078
 9.9
 
             
Other consumer loans
 84,650
 2.1
 
 86,064
 2.2
 
  Total consumer loans
 469,360
 11.9
 
 475,142
 12.1
 
  Subtotal
 3,940,652
 100.0
 %
 3,916,326
 100.0
 %
Less:  Allowance for loan losses
 (49,562)
   
 (48,453)
   
           Net deferred loan fees
 (1,642)
   
 (1,581)
   
Loans, net
 $3,889,448
   
 $3,866,292
   

The recorded investment in loans does not include accrued interest.

The Company had $533,000 in residential real estate loans in the process of foreclosure as of March 31, 2019, compared to $586,000 as of December 31, 2018.



10


NOTE 4. ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY

The following tables present the activity in the allowance for loan losses by portfolio segment for the three-month periods ended March 31, 2019 and 2018:


     
Commercial
                       
     
Real Estate
                       
 
Commercial
 
and
 
Agri-business
     
Consumer
           
 
and
 
Multifamily
 
and
 
Other
 
1-4 Family
 
Other
       
(dollars in thousands)
Industrial
 
Residential
 
Agricultural
 
Commercial
 
Mortgage
 
Consumer
 
Unallocated
 
Total
Three Months Ended March 31, 2019
                           
Beginning balance, January 1
 $22,518
 
 $15,393
 
 $4,305
 
 $368
 
 $2,292
 
 $283
 
 $3,294
 
 $48,453
  Provision for loan losses
1,493
 
18
 
(161)
 
5
 
45
 
85
 
(285)
 
1,200
  Loans charged-off
(83)
 
0
 
0
 
0
 
(82)
 
(119)
 
0
 
(284)
  Recoveries
102
 
36
 
2
 
0
 
11
 
42
 
0
 
193
    Net loans charged-off
19
 
36
 
2
 
0
 
(71)
 
(77)
 
0
 
(91)
Ending balance
 $24,030
 
 $15,447
 
 $4,146
 
 $373
 
 $2,266
 
 $291
 
 $3,009
 
 $49,562


     
Commercial
                       
     
Real Estate
                       
 
Commercial
 
and
 
Agri-business
     
Consumer
           
 
and
 
Multifamily
 
and
 
Other
 
1-4 Family
 
Other
       
(dollars in thousands)
Industrial
 
Residential
 
Agricultural
 
Commercial
 
Mortgage
 
Consumer
 
Unallocated
 
Total
Three Months Ended March 31, 2018
                             
Beginning balance, January 1
 $21,097
 
 $14,714
 
 $4,920
 
 $577
 
 $2,768
 
 $379
 
 $2,666
 
 $47,121
  Provision for loan losses
3,902
 
207
 
(76)
 
(67)
 
(794)
 
(49)
 
177
 
3,300
  Loans charged-off
(4,360)
 
(491)
 
0
 
0
 
(7)
 
(119)
 
0
 
(4,977)
  Recoveries
86
 
8
 
4
 
0
 
51
 
34
 
0
 
183
    Net loans charged-off
(4,274)
 
(483)
 
4
 
0
 
44
 
(85)
 
0
 
(4,794)
Ending balance
 $20,725
 
 $14,438
 
 $4,848
 
 $510
 
 $2,018
 
 $245
 
 $2,843
 
 $45,627

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of March 31, 2019 and December 31, 2018:


     
Commercial
                       
     
Real Estate
                       
 
Commercial
 
and
 
Agri-business
     
Consumer
           
 
and
 
Multifamily
 
and
 
Other
 
1-4 Family
 
Other
       
(dollars in thousands)
Industrial
 
Residential
 
Agricultural
 
Commercial
 
Mortgage
 
Consumer
 
Unallocated
 
Total
March 31, 2019
                             
Allowance for loan losses:
                             
  Ending allowance balance attributable to loans:
                           
    Individually evaluated for impairment
 $8,860
 
 $398
 
 $81
 
 $0
 
 $467
 
 $28
 
 $0
 
 $9,834
    Collectively evaluated for impairment
15,170
 
15,049
 
4,065
 
373
 
1,799
 
263
 
3,009
 
39,728
Total ending allowance balance
 $24,030
 
 $15,447
 
 $4,146
 
 $373
 
 $2,266
 
 $291
 
 $3,009
 
 $49,562
                               
Loans:
                             
  Loans individually evaluated for impairment
 $18,611
 
 $3,441
 
 $430
 
 $0
 
 $2,022
 
 $43
 
 $0
 
 $24,547
  Loans collectively evaluated for impairment
1,408,737
 
1,623,594
 
301,976
 
111,875
 
383,913
 
84,368
 
0
 
3,914,463
Total ending loans balance
 $1,427,348
 
 $1,627,035
 
 $302,406
 
 $111,875
 
 $385,935
 
 $84,411
 
 $0
 
 $3,939,010


     
Commercial
                       
     
Real Estate
                       
 
Commercial
 
and
 
Agri-business
     
Consumer
           
 
and
 
Multifamily
 
and
 
Other
 
1-4 Family
 
Other
       
(dollars in thousands)
Industrial
 
Residential
 
Agricultural
 
Commercial
 
Mortgage
 
Consumer
 
Unallocated
 
Total
December 31, 2018
                             
Allowance for loan losses:
                             
  Ending allowance balance attributable to loans:
                           
    Individually evaluated for impairment
 $8,552
 
 $921
 
 $73
 
 $0
 
 $457
 
 $26
 
 $0
 
 $10,029
    Collectively evaluated for impairment
13,966
 
14,472
 
4,232
 
368
 
1,835
 
257
 
3,294
 
38,424
Total ending allowance balance
 $22,518
 
 $15,393
 
 $4,305
 
 $368
 
 $2,292
 
 $283
 
 $3,294
 
 $48,453
                               
Loans:
                             
  Loans individually evaluated for impairment
 $19,734
 
 $4,266
 
 $433
 
 $0
 
 $2,240
 
 $44
 
 $0
 
 $26,717
  Loans collectively evaluated for impairment
1,385,604
 
1,562,899
 
370,174
 
95,520
 
388,053
 
85,778
 
0
 
3,888,028
Total ending loans balance
 $1,405,338
 
 $1,567,165
 
 $370,607
 
 $95,520
 
 $390,293
 
 $85,822
 
 $0
 
 $3,914,745



11


The following table presents loans individually evaluated for impairment by class of loans as of March 31, 2019:


 
Unpaid
     
Allowance for
 
Principal
 
Recorded
 
Loan Losses
(dollars in thousands)
Balance
 
Investment
 
Allocated
With no related allowance recorded:
         
  Commercial and industrial loans:
         
    Working capital lines of credit loans
 $2,904
 
 $212
 
 $0
    Non-working capital loans
2,345
 
950
 
0
  Commercial real estate and multi-family residential loans:
         
    Owner occupied loans
2,272
 
1,667
 
0
  Agri-business and agricultural loans:
         
    Loans secured by farmland
603
 
283
 
0
  Consumer 1-4 family loans:
         
    Closed end first mortgage loans
224
 
143
 
0
    Open end and junior lien loans
98
 
98
 
0
With an allowance recorded:
         
  Commercial and industrial loans:
         
    Working capital lines of credit loans
6,698
 
6,390
 
2,874
    Non-working capital loans
11,016
 
11,059
 
5,986
  Commercial real estate and multi-family residential loans:
         
    Owner occupied loans
1,774
 
1,774
 
398
  Agri-business and agricultural loans:
         
    Loans secured by farmland
147
 
147
 
81
  Consumer 1-4 family mortgage loans:
         
    Closed end first mortgage loans
1,779
 
1,781
 
467
  Other consumer loans
43
 
43
 
28
Total
 $29,903
 
 $24,547
 
 $9,834






12

The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2018:


 
Unpaid
     
Allowance for
 
Principal
 
Recorded
 
Loan Losses
(dollars in thousands)
Balance
 
Investment
 
Allocated
With no related allowance recorded:
         
  Commercial and industrial loans:
         
    Non-working capital loans
 $3,284
 
 $1,889
 
 $0
  Commercial real estate and multi-family residential loans:
         
    Owner occupied loans
1,773
 
1,527
 
0
  Agri-business and agricultural loans:
         
    Loans secured by farmland
603
 
283
 
0
  Consumer 1-4 family loans:
         
    Closed end first mortgage loans
583
 
502
 
0
    Open end and junior lien loans
220
 
220
 
0
With an allowance recorded:
         
  Commercial and industrial loans:
         
    Working capital lines of credit loans
9,691
 
6,694
 
2,602
    Non-working capital loans
11,099
 
11,151
 
5,950
  Commercial real estate and multi-family residential loans:
         
    Construction and land development loans
291
 
291
 
142
    Owner occupied loans
2,938
 
2,448
 
779
  Agri-business and agricultural loans:
         
    Loans secured by farmland
150
 
150
 
73
  Consumer 1-4 family mortgage loans:
         
    Closed end first mortgage loans
1,517
 
1,518
 
457
  Other consumer loans
45
 
44
 
26
Total
 $32,194
 
 $26,717
 
 $10,029






13

The following table presents loans individually evaluated for impairment by class of loans as of and for the three-month period ended March 31, 2019:


         
Cash Basis
 
Average
 
Interest
 
Interest
 
Recorded
 
Income
 
Income
(dollars in thousands)
Investment
 
Recognized
 
Recognized
With no related allowance recorded:
         
  Commercial and industrial loans:
         
    Working capital lines of credit loans
 $155
 
 $1
 
 $0
    Non-working capital loans
1,549
 
29
 
24
  Commercial real estate and multi-family residential loans:
         
    Owner occupied loans
1,621
 
11
 
8
  Agri-business and agricultural loans:
         
    Loans secured by farmland
283
 
0
 
0
  Consumer 1-4 family loans:
         
    Closed end first mortgage loans
380
 
1
 
1
    Open end and junior lien loans
193
 
0
 
0
With an allowance recorded:
         
  Commercial and industrial loans:
         
    Working capital lines of credit loans
6,487
 
72
 
59
    Non-working capital loans
11,416
 
132
 
128
  Commercial real estate and multi-family residential loans:
         
    Owner occupied loans
2,080
 
13
 
12
  Agri-business and agricultural loans:
         
    Loans secured by farmland
147
 
2
 
1
  Consumer 1-4 family mortgage loans:
         
    Closed end first mortgage loans
1,598
 
12
 
12
  Other consumer loans
43
 
1
 
1
Total
 $25,952
 
 $274
 
 $246













14

The following table presents loans individually evaluated for impairment by class of loans as of and for the three-month period ended March 31, 2018:


         
Cash Basis
 
Average
 
Interest
 
Interest
 
Recorded
 
Income
 
Income
(dollars in thousands)
Investment
 
Recognized
 
Recognized
With no related allowance recorded:
         
  Commercial and industrial loans:
         
    Working capital lines of credit loans
 $1,011
 
 $7
 
 $2
    Non-working capital loans
1,728
 
15
 
5
  Commercial real estate and multi-family residential loans:
         
    Construction and land development loans
102
 
1
 
0
    Owner occupied loans
2,557
 
7
 
2
  Agri-business and agricultural loans:
         
    Loans secured by farmland
283
 
0
 
0
  Consumer 1-4 family loans:
         
    Closed end first mortgage loans
543
 
2
 
1
    Open end and junior lien loans
92
 
0
 
0
With an allowance recorded:
         
  Commercial and industrial loans:
         
    Working capital lines of credit loans
1,608
 
2
 
1
    Non-working capital loans
3,216
 
2
 
0
  Commercial real estate and multi-family residential loans:
         
    Construction and land development loans
721
 
11
 
5
    Owner occupied loans
1,194
 
0
 
0
  Consumer 1-4 family mortgage loans:
         
    Closed end first mortgage loans
968
 
7
 
4
    Open end and junior lien loans
154
 
0
 
0
  Other consumer loans
49
 
1
 
0
Total
 $14,226
 
 $55
 
 $20



15

The following table presents the aging of the recorded investment in past due loans as of March 31, 2019 by class of loans:


         
Greater than
           
     
30-89
 
90 Days Past
     
Total Past
   
 
Loans Not
 
Days
 
Due and Still
     
Due and
   
(dollars in thousands)
Past Due
 
Past Due
 
Accruing
 
Nonaccrual
 
Nonaccrual
 
Total
  Commercial and industrial loans:
                     
    Working capital lines of credit loans
 $720,597
 
 $4,308
 
 $0
 
 $2,118
 
 $6,426
 
 $727,023
    Non-working capital loans
695,711
 
3,354
 
0
 
1,260
 
4,614
 
700,325
  Commercial real estate and multi-family
                     
  residential loans:
                     
    Construction and land development loans
292,627
 
0
 
0
 
0
 
0
 
292,627
    Owner occupied loans
554,668
 
47
 
481
 
1,749
 
2,277
 
556,945
    Nonowner occupied loans
536,900
 
142
 
0
 
0
 
142
 
537,042
    Multifamily loans
240,421
 
0
 
0
 
0
 
0
 
240,421
  Agri-business and agricultural loans:
                     
    Loans secured by farmland
139,230
 
147
 
0
 
283
 
430
 
139,660
    Loans for agricultural production
162,746
 
0
 
0
 
0
 
0
 
162,746
  Other commercial loans
111,875
 
0
 
0
 
0
 
0
 
111,875
  Consumer 1-4 family mortgage loans:
                     
    Closed end first mortgage loans
186,373
 
1,466
 
0
 
588
 
2,054
 
188,427
    Open end and junior lien loans
184,217
 
87
 
0
 
98
 
185
 
184,402
    Residential construction loans
13,106
 
0
 
0
 
0
 
0
 
13,106
  Other consumer loans
84,265
 
146
 
0
 
0
 
146
 
84,411
Total
 $3,922,736
 
 $9,697
 
 $481
 
 $6,096
 
 $16,274
 
 $3,939,010

The following table presents the aging of the recorded investment in past due loans as of December 31, 2018 by class of loans:


         
Greater than
           
     
30-89
 
90 Days Past
     
Total Past
   
 
Loans Not
 
Days
 
Due and Still
     
Due and
   
(dollars in thousands)
Past Due
 
Past Due
 
Accruing
 
Nonaccrual
 
Nonaccrual
 
Total
  Commercial and industrial loans:
                     
    Working capital lines of credit loans
 $684,191
 
 $4,328
 
 $0
 
 $2,245
 
 $6,573
 
 $690,764
    Non-working capital loans
709,629
 
3,368
 
0
 
1,577
 
4,945
 
714,574
  Commercial real estate and multi-family
                     
  residential loans:
                     
    Construction and land development loans
265,544
 
0
 
0
 
0
 
0
 
265,544
    Owner occupied loans
583,214
 
486
 
0
 
2,269
 
2,755
 
585,969
    Nonowner occupied loans
520,431
 
57
 
0
 
0
 
57
 
520,488
    Multi-family loans
195,164
 
0
 
0
 
0
 
0
 
195,164
  Agri-business and agricultural loans:
                     
    Loans secured by farmland
177,080
 
150
 
0
 
283
 
433
 
177,513
    Loans for agricultural production
193,094
 
0
 
0
 
0
 
0
 
193,094
  Other commercial loans
95,520
 
0
 
0
 
0
 
0
 
95,520
  Consumer 1-4 family mortgage loans:
                     
    Closed end first mortgage loans
183,420
 
1,370
 
0
 
671
 
2,041
 
185,461
    Open end and junior lien loans
188,320
 
98
 
0
 
220
 
318
 
188,638
    Residential construction loans
16,194
 
0
 
0
 
0
 
0
 
16,194
  Other consumer loans
85,654
 
168
 
0
 
0
 
168
 
85,822
Total
 $3,897,455
 
 $10,025
 
 $0
 
 $7,265
 
 $17,290
 
 $3,914,745

16

Troubled Debt Restructurings:

Troubled debt restructured loans are included in the totals for impaired loans. The Company has allocated $2.9 million and $3.7 million of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of March 31, 2019 and December 31, 2018, respectively. The Company is not committed to lend additional funds to debtors whose loans have been modified in a troubled debt restructuring.


 
March 31
 
December 31
(dollars in thousands)
2019
 
2018
Accruing troubled debt restructured loans
 $6,196
 
 $8,016
Nonaccrual troubled debt restructured loans
 3,812
 
 4,384
Total troubled debt restructured loans
 $10,008
 
 $12,400


During the three months ending March 31, 2019, certain loans were modified as troubled debt restructurings. The modified terms of these loans include one or a combination of the following: inadequate compensation for the terms of the restructure or renewal; a modification of the repayment terms which delays principal repayment for some period; or renewal terms offered to borrowers in financial distress where no additional credit enhancements were obtained at the time of renewal.

Additional concessions were granted to borrowers with previously identified troubled debt restructured loans during the period.  One of the loans is for a commercial real estate building where the cash flow does not support the loan with a recorded investment of $533,000.  The other loan is for commercial and industrial non-working capital purposes and this borrower had a recorded investment of $70,000 that was subsequently paid off prior to March 31, 2019.  These concessions are not included in table below.

The following table presents loans by class modified as new troubled debt restructurings that occurred during the three months ended March 31, 2019:


     
Modified Repayment Terms
     
Pre-Modification
 
Post-Modification
     
Extension
     
Outstanding
 
Outstanding
     
Period or
 
Number of
 
Recorded
 
Recorded
 
Number of
 
Range
(dollars in thousands)
Loans
 
Investment
 
Investment
 
Loans
 
(in months)
Troubled Debt Restructurings
                 
Commercial and industrial loans:
                 
  Working capital lines of credit loans
 1
 
 35
 
 35
 
 1
 
0
Total
1
 
 $35
 
 $35
 
1
 
0


For the three month period ending March 31, 2019, the troubled debt restructurings described above did not impact the allowance for loan losses and no charge-offs were recorded.

During the three months ended March 31, 2018, certain loans were modified as troubled debt restructurings. The modified terms of these loans include one or a combination of the following: inadequate compensation for the terms of the restructure or renewal; a modification of the repayment terms which delays principal repayment for some period; or renewal terms offered to borrowers in financial distress where no additional credit enhancements were obtained at the time of renewal.

Additional concessions were granted to borrowers with previously identified troubled debt restructured loans during the period. The loan to one of the borrowers is for a commercial real estate building where the collateral value and cash flows from the companies occupying the buildings do not support the loan with recorded investments of $341,000. The loans to two other borrowers are for commercial and industrial capital and non-working capital loans with recorded investments of $551,000. These concessions are not included in the following table.


17




The following table presents loans by class modified as new troubled debt restructurings that occurred during the three months ended March 31, 2018:


       
Modified Repayment Terms
     
Pre-Modification
 
Post-Modification
       
Extension
     
Outstanding
 
Outstanding
       
Period or
 
Number of
 
Recorded
 
Recorded
   
Number of
 
Range
(dollars in thousands)
Loans
 
Investment
 
Investment
   
Loans
 
(in months)
Troubled Debt Restructurings
                   
Commercial and industrial loans:
                   
  Working capital lines of credit loans
1
 
 $600
 
 $600
   
1
 
0
  Non-working capital loans
1
 
 1,400
 
 1,400
   
1
 
0
Commercial real estate and multi-
                   
  family residential loans:
                   
  Construction and land
                   
    development loans
1
 
 824
 
 824
   
1
 
12
  Owner occupied loans
1
 
 387
 
 387
   
1
 
12
Consumer 1-4 family loans:
                   
  Closed end first mortgage loans
1
 
 198
 
 197
   
1
 
239
Total
5
 
 $3,409
 
 $3,408
   
5
 
0-239

For the three-month period ending March 31, 2018, the troubled debt restructurings described in the table above decreased the allowance for loan losses by $227,000, primarily due to the reduction of the allowance for loan losses on the construction and land development loan described in the table above.

For the three-month period ending March 31, 2018, charge-offs of $1.6 million were recorded on the troubled debt restructurings described in the table above, which were from the charge-offs taken on the two commercial and industrial loans described in the table above.

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes commercial loans individually by classifying the loans as to credit risk. This analysis is performed on a quarterly basis for Special Mention, Substandard and Doubtful grade loans and annually on Pass grade loans over $250,000.

The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as Special Mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard. Loans classified as Substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard, with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

18

Loans not meeting the criteria above that are analyzed individually as part of the above-described process are considered to be Pass rated loans with the exception of consumer troubled debt restructurings which are evaluated and listed with Substandard commercial grade loans and consumer nonaccrual loans which are evaluated individually and listed with Not Rated loans. Loans listed as Not Rated are consumer loans or commercial loans with consumer characteristics included in groups of homogenous loans which are analyzed for credit quality indicators utilizing delinquency status. As of March 31, 2019, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:


     
Special
         
Not
   
(dollars in thousands)
Pass
 
Mention
 
Substandard
 
Doubtful
 
Rated
 
Total
  Commercial and industrial loans:
                     
    Working capital lines of credit loans
 $638,075
 
 $59,140
 
 $29,489
 
 $0
 
 $319
 
 $727,023
    Non-working capital loans
651,748
 
17,072
 
25,632
 
0
 
5,873
 
700,325
  Commercial real estate and multi-
                     
    family residential loans:
                     
    Construction and land development loans
292,275
 
352
 
0
 
0
 
0
 
292,627
    Owner occupied loans
509,539
 
25,024
 
22,382
 
0
 
0
 
556,945
    Nonowner occupied loans
533,975
 
2,439
 
628
 
0
 
0
 
537,042
    Multifamily loans
240,211
 
210
 
0
 
0
 
0
 
240,421
  Agri-business and agricultural loans:
                   
    Loans secured by farmland
128,492